Zacks Analyst Blog Highlights: KB Home, DR Horton, Lennar, PulteGroup and Accenture

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Jan 12, 2011, 09:30 ET

CHICAGO, Jan. 12, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: KB Home (NYSE: KBH), DR Horton Inc. (NYSE: DHI), Lennar Corp. (NYSE: LEN), PulteGroup, Inc. (NYSE: PHM) and Accenture plc (NYSE: ACN).

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Here are highlights from Tuesday's Analyst Blog:

KB Home's Lackluster 4Q

KB Home (NYSE: KBH) reported a net income of $17.4 million, or 23 cents per share in its fourth quarter ended November 30, 2010, substantially down from $100.7 million or $1.31 per share in the year-ago quarter. The year-over-year drop was due to lower housing and land sale revenues, which offset higher margins and lower selling, general and administrative expenses.

However, the reported figure comfortably beat the Zacks Consensus Estimate of a loss of 16 cents per share for the quarter and the loss of $1.4 million or 2 cents per share in its third quarter ended August 31, 2010.

Fourth quarter results, however, included inventory impairment and land option contract abandonment charges of $3.2 million and an income tax benefit of $2.0 million. Year-ago net income included charges of $77.2 million for inventory and joint venture impairments and land option contract abandonments and an income tax benefit of $191.7 million.

Revenues

Total revenue dipped 33% to $451 million due to lower housing and land sale revenues. Total revenue fell short of the Zacks Consensus of $465 million.

Housing revenues declined 28% to $446 million reflecting a 37% decrease in the number of homes delivered to 1918, partly offset by a 14% increase in the average selling price to $232,500. The company's land sale revenues plunged 96% to $1.9 million reflecting a lower volume of activity in the current quarter.

The Financial Services business, which include the KB Home's equity interest in an unconsolidated mortgage banking joint venture, recorded a 4% drop in revenues to $3 million.

Orders and Backlog

Orders in the quarter went down 25% to 1,085 homes. As a percentage of beginning backlog, the company's cancellation rate was 29% in the quarter compared with 17% in the year-ago quarter. As of November 30, 2010, the company's backlog stood at 1,336 homes, a 37% decline from the backlog of 2,126 homes as of November 30, 2009.

Potential future housing revenues in backlog fell 38% to $263.8 million as of November 30, 2010 from $422.5 million as of November 30, 2009, primarily due to the lower number of homes in backlog.

Margin & Cost Performance

The housing gross margin (excluding inventory impairment and land option contract abandonment charges) improved to 19.7% in the quarter from 19% in the year-ago quarter. Including the above mentioned charges, gross margin in the quarter stood at 19.1%, a substantial improvement from 6.8% in the prior-year quarter.

Including impairment charges, land sale losses in the quarter were $0.3 million compared with land sale losses of $38.0 million in the fourth quarter of 2009.

Selling, general and administrative (SG&A) expenses declined 35% year over year to $29.7 million resulting from cost-saving initiatives adopted by the company and also from a lower number of homes delivered. As a percentage of housing revenues, SG&A expenses improved to 12.5% in the quarter from 13.8% in the year-ago quarter.

Operating income at KB Home's homebuilding business (including housing and land) was recorded at $29.1 million, reversing its prior-year loss of $81.5 million. The significant improvement was ascribed to a higher housing gross margin, reduced SG&A expenses, lower asset impairment and land option contract abandonment charges, and decreased losses from land sales.

The Financial segment's pretax income slipped to $3.6 million in the quarter from $7.5 million in the year-earlier quarter due to lower income generated from the joint venture on lesser number of loans originated.

Financial Position

KB Home had cash, cash equivalents and restricted cash of $1.02 billion compared with $1.29 billion as of November 30, 2009. The debt-to-capitalization ratio aggravated to 73.8% from 72% as of November 30, 2009.

Fiscal 2010 Performance: A Snapshot

For fiscal 2010, KB Home reported a net loss of $69.4 million, or 90 cents per share compared with a loss of $101.8 million or $1.33 per share in the prior year. The current year's results included charges of $19.9 million for inventory impairments and land option contract abandonments, and an income tax benefit of $7.0 million.

The previous year included charges of $206.7 million for inventory and joint venture impairments and land option contract abandonments and an income tax benefit of $209.4 million.

Total revenue dipped 13% year over year to $1.59 billion in the fiscal year. KB Home delivered 7,346 homes during the year, down 13% from the year-earlier period. Average selling price, however, increased 4% year over year to $214,500.

Our Take

KB Home's KBnxt business model is strategically sound and designed to generate sufficient capital for reinvestment, bringing down the risk of unsold inventory accumulation. In addition, the company's continuous effort to refresh and upgrade its product is commendable. The company expects to benefit from its recent land purchases in Austin due to a higher demand for homes in the region.

Further, KB Home has no significant near-term debt maturities, giving it an edge over its peers in the industry. However, a fragile housing market along with increased availability of housing alternatives may keep the company's earnings under pressure. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.

Los Angeles, California-based KB Home, builds various types of homes, including attached and detached single-family homes, town homes and condominiums, designed primarily for first-time, first move-up and adult buyers. It also offers mortgage services in a joint venture with Countrywide KB Home Loans.

In addition, the company, through its subsidiary, KB Home Mortgage Company, provides title and insurance services to its homebuyers. KB Home competes with the likes of DR Horton Inc. (NYSE: DHI), Lennar Corp. (NYSE: LEN) and PulteGroup, Inc. (NYSE: PHM).

Accenture: Good Start to the Year

Technology outsourcing and consulting service provider Accenture plc (NYSE: ACN) has kick-started the new year with yet another acquisition. Recently, it completed the acquisition of Germany-based customer relationship management (CRM) and mobility software provider CAS Computer AG. Financial terms of the deal were not disclosed.

CAS Computer provides software applications that facilitate organizations to better manage their trade promotions, retail executions and customer service. The company's services are specifically targeted at organizations operating in the consumer products industry.

Accenture will integrate the new unit under its software business, but will use the CAS brand name. Following the acquisition, Accenture will be able to capitalize on CAS Computer's intellectual property and its global customer base.

The acquisition will help in the rapid adaptability of Accenture's CRM service suite, particularly by customers in the retail segment. The improved solutions will enable retailers to efficiently build an in-store strategy through improved product promotions and marketing within the store, thereby boosting sales.

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